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Kroger is reconsidering its rollout of digital shopping as it protects profits

Vaseline 2 months ago

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Kroger’s announcement last month that it would close its online store distribution facilities in Miami, Austin and San Antonio, Texas, appears to be the latest recalibration of its home delivery and digital strategy.

In a corporate filing earlier this month, the Cincinnati-based supermarket giant also disclosed that it has delayed construction of a planned national network of home delivery centers called customer fulfillment centers. Forecasts for overall digital sales have also been scaled back.

Kroger’s annual digital revenue rose to $12 billion by 2023, about 8% of the company’s total revenue of $150 billion. But it’s a far cry from the $20 billion target that executives envisioned in early 2021.

In its latest setback, Kroger said on March 27 it would close its three e-commerce warehouses, one in South Florida and two in central Texas.

The warehouses were an attempt to compete with other supermarket chains in areas where Kroger did not have stores. But it has found it difficult to combat established regional powerhouses like HEB in Texas or Publix in Florida.

Kroger spokeswoman Erin Rolfes said the warehouses closed in May because they were not meeting the financial targets needed to keep them open. The three facilities were smaller “spoke” operations to larger “hub” customer fulfillment centers in Groveland, Florida and Dallas, Texas.

“Kroger’s commitment to innovation means we rapidly test and learn to identify the most effective ways to deliver fresh, affordable food to our customers,” Rolfes told The Enquirer. “Despite our best efforts… these facilities did not meet the benchmarks we set for success.”

Kroger is scaling back its digital shopping goals

Kroger already appears to have delayed its big plans for digital shopping. In a major move first revealed in 2018, Kroger said it was teaming up with British online grocer Ocado to build 20 robot warehouses to help it compete with Amazon.

The first such facility opened in 2021 in the Cincinnati suburb of Monroe, followed by two others that year and another four in 2022. The colossal $55 million Monroe facility on Hamilton Lebanon Road in Butler County is powered by robots and is set up to process thousands of digital data. orders within a 90-mile radius – as far away as Dayton, Columbus, Indianapolis and Louisville.

Just before Kroger opened the department store in Monroe, the grocer revealed that its digital business — which includes home delivery and online orders picked up in store — had topped $10 billion in 2020, amid the height of the COVID-19 pandemic. pandemic. The grocer also boldly announced in early 2021 that it wants to double that figure by the end of 2023.

But since then, Kroger’s annual digital sales have only grown 20% since 2020 — and the growth trajectory has been erratic, with sales down 3% in 2021, up 4% in 2022 and up 12% last year.

While the company stuck to its bold sales plans for nearly two years, it revised those numbers in early 2023, saying “we expect digital sales to grow by double digits.” She repeated this prediction in the government application at the beginning of this month.

Kroger isn’t the only grocer having trouble expanding its digital operations. Chicago e-commerce consultancy Brick Meets Click found that online grocery sales in the US fell 1.2% last year to $95.8 billion. The company says more and more customers are shopping online and placing larger orders, but have done so less frequently in recent years.

‘Still in a very early inning’

While stores are notoriously low-margin businesses, Kroger’s digital business makes even less money per dollar.

“Task one is to make sure we don’t lose the digital customer and task two is our responsibility to figure out how to make sure that customer is profitable,” Kroger CEO Rodney McMullen told Wall Street analysts on a conference call meeting on March 7. the grocer’s financial results for 2023.

McMullen admitted on the call that Kroger’s digital profitability may not match its in-store profitability over the next three to five years.

Still, McMullen emphasized that digital is “an important part of our growth model.” He noted that online shoppers and in-store shoppers are hardly mutually exclusive. Many shoppers like to do both, he said, adding, “customers who shop both in-store and online spend three to four times more than shoppers who shop only in-store.”

Kroger officials said the company remained “committed” to its digital operations.

“We have a path to get to where the margins there are the same as in-store shopping,” he told analysts. “If you think about a baseball game, we’re still in a very early inning of this journey.”